I have nothing against real estate
agents. Listing agents help sellers with
pricing, inspections, marketing, and contracts. Buyers' agents
chauffeur their clients to different houses, tell them about
different neighborhoods, and help them negotiate offers.

The problem is they charge too
much. With home prices so high, their services are
no longer worth the 5% to 6% commissions they receive.

Real estate agents protest that
their commissions are fair--most of them work very hard and earn
just modest incomes. True enough, but that's only because
there are too many real estate agents.

Here's why: Imagine a world in which, say,
roofers formed an association that fixed the price of roofing to 6% of any home's value. At first, roofers would do
quite well--they could make $720,000 a year if they roofed just two $500,000 houses a month.

But the windfall wouldn't
last. Other people
would rush to share in the
bonanza. Before long, roofers would be spending most of
their time competing for customers.

Of course, if we had to pay 6% of our home's
value to get it roofed, many of us would strap on tool belts and do
the work ourselves. As we worked, professional roofers would
surely stop by to warn us of the dangers. We could fall and
get injured. There could be expensive water damage if we did
it wrong. But many of us would persevere. We are, after
all, a nation of do-it-yourselfers.

If we had to pay 6% of our property's
value to get it roofed, many of us would do it ourselves.

Something similar has happened with
real estate agents. Because of high commissions, some two
million Americans have gotten licenses. But there's not enough
work to go around. The average working realtor sells just six houses a
year, but works year-round to get clients. As economists
Dubner and Levitt (authors of Freakonomics) put it, "Most
real-estate agents seem to spend 95 percent of their energy chasing
clients (for which they are paid nothing) and 5 percent actually
serving them (for which they are paid way too much)."

In this primer, I'll explain how sellers
can get much more "bang for the
buck" by overseeing the sale of their houses themselves and hiring
just the service providers -- like MLS brokers and
photographers -- they want. For more information, go to Advice
for Sellers.

I'll also explain how buyers
can save money either by making offers without the help of a real
estate agent, or by doing some of the work themselves and asking
agents for buyer rebates. For more information, go to Advice
for Buyers.

Disclaimer: This information
in this website is offered free of charge as a public service.
I make no representations or warranties about its accuracy or
completeness. My advice may not apply to your situation or in
your state. I shall not be liable for any damages resulting
from the use of this content.